A Historical Perspective - MAI Systems Corporation dba Hotel Information Systems - Case Study Example

A Historical Perspective - MAI Systems Corporation dba Hotel Information Systems MAI Systems Corporation dba Hotel Information Systems is a provider of enterprise wide solutions including software solutions, mid-range, multi-user computer systems and their system software, other network products, and application software designed for several specific industries. Founded in 1957 by Walter R. Oreamuno, originally from Costa Rica, it caters to various businesses in North and Latin America. Its core business comprises of solutions like property management software and services hospitality industry. This software is used to manage functions such as reservations, rates and availability, and affinity programs, including dedicated tasks such as tracking casino accounting, managing wholesaler reservations, and managing multiple currencies. Recently, Softbrands purchased the Company back in August 2006. Since its inception in 1957, the Company has gone through significant changes. Being an opportunist and thanks to IBM and the Justice Department in 1956 when the entire computer industry was under the monopoly of IBM, Walter R. Oreamuno and his associate came up with an idea of re-purchasing the computer equipment from IBM customers and leasing it back to the customers at a lower rate than what was being offered by IBM. This idea was a great boast to the MAI’s growth but did not last that long. During this time, the Company opted for an IPO with an objective of raising US $ 300, 000 from the public. The stock performed really well rising to US $ 66 per share in 1966. Not realizing IBM’s strategy of depreciating its punch card equipment and the innovation of 360 third generation computer, MAI invested substantially in the older equipment that resulted in MAI’s growth to stall. During 1967, a major setback on merger plans with Transamerica, Oreamuno stepped down as the CEO and was replaced by Luther Schwalm an ex-IBM veteran. With a shift in strategy, the earlier investment in the older IBM equipment did not prove to be fertile, Schwalm decided to write-off the outdated older equipment. MAI’s cash flow was impacted so substantially that its net worth in 1970 was negative $ 28 million. Oreamuno’s decision proved out to be so wrong that even Schwalm was unable to bring the Company out of trouble. It was that when in 1971 MAI’s CFO took over as the President. With a new strategy, Kurshan reorganized MAI into a holding company with various subsidiaries. Basic/Four and Sorbus subsidiaries of MAI did well in bringing MAI back to life. Sorbus took advantage of MAI's existing 1,200-person maintenance staff as its core, and expanding from there. Basic/Four was a major success instantaneously. In 1972, Basic/Four introduced the first multi-user transaction-processing mini-computer to use the Business Basic language. Basic/Four's revenue grew up to $43 million, and it was contributing around two-thirds of MAI's total earnings. Focused on software products, MAI in 1977 took over acquired Word stream Corporation. This company was producing word processing systems and IBM-compatible CRT terminals. MAI shipped its 10,000th computer system in the year 1980. The market for these computers began to shift drastically at this time, and small companies were turning to cheaper, newly available personal computers instead of the mini-computers that had been Basic/Four's forte. In 1983, the company introduced its MAI 8000, a super-minicomputer nearly as powerful as a mainframe computer, which was proficient enough of servicing up to 96 users at one time. In 1984, a New York-based investor Asher Edelman purchased 12 percent of MAI's stock. Edelman by means of a proxy war for control of the company won four seats on MAI's ten-member board of directors. In the course of the proxy battle, Edelman received a settlement in the $1 million range following a libel suit filed against MAI concerning company advertisements. During April 1984, MAI International Corporation, the company's worldwide marketing arm, was folded into Basic/Four. Basic/Four also absorbed another MAI division, MAI Applications Software Corporation. In August 1984, the Company was taken over by Edelman. Thereafter with prior intentions, Edelman liquidated the company and an investor Bennett S. LeBow purchased Basic / Four that came out through announcement by MAI Basic Four Inc stating that its two principal shareholders, Bennett S. LeBow and William Weksel, had retained Drexel Burnham Lambert Inc. to sell their 42.4 percent interest in the company, a stake now worth about $113 million. During this time Company’s shares jumped 25 percent in New York Stock Exchange trading, closing at $19, up $3.875. Bennett LeBow, who owned 37 percent of the shares, acquired the computer maker in a leveraged buyout in 1985 after a takeover of its parent by the New York investor Asher B. Edelman. MAI Basic Four, based in Tustin, Calif., went public again in 1986. The investors gave no reason for wanting to sell their holdings, but Michael L. Veuve, a MAI Basic Four vice president, suggested that Mr. LeBow was preoccupied with the Western Union Corporation, which he recently acquired. (NY Times) Thereafter, the Company’s ownership changed few hands and it was in 1991 that MAI shifted its strategy radically and began phasing out its manufacturing operations and shifting gears from a manufacturer to a re-seller of computer equipment made by other manufacturers. The company also continued it cost cutting efforts but MAI's finances continued to deteriorate, and it incurred total loss of $182 million in 1992. Following this, the company filed for chapter 11 bankruptcy reorganization. With a concrete re-organization plan, it came out of chapter 11 bankruptcy protection in November 1993. Basic / Four expansion Global expansion continued with the formation of MAI Australia Information Systems in 1983. It was in the same year when MAI reported an operating loss of $ 10 million. In the 1984, a New York based investor Asher B. Edelman, finding MAI attractive, purchased 7 % shares with the intention of ultimately having a management control on the Company. Edelman, in 1983 accumulated about 20 % shares of Canal-Randolph Corporation’s shares and ultimately controlled and had half majority on the Company’s Board. Similarly, in MAI’s case Edelman with the intention of controlling the Company, started a proxy war and was willing to buy out more MAI stock. Edelman had retained the services of Salmon Brothers as Investment Bankers. Edelman soon contacted Raymond P. Kurshan President of MAI and requested him to recommend three of his candidates out of four directors to be elected as Directors on the Board in its upcoming Annual General Meeting on February 16th 1984. However, the management of MAI refused to recommend Edelman’s nominations for Directors. Threatened with the proxy contest, MAI’s management postponed its AGM until March 12th. With the intention of negotiating with Edelman, Kurshan wrote a letter to him offering him one board member seat instead of three with a reasoning that the Company’s customers confidence had shaken. Edelman severely rejected the letter and instead stated that MAI needs assistance / investment as it was suffering severe losses, and therefore continued with his decision of proxy nomination of four board members instead of three. The proxy war continued and Edelman opted to nominate four members instead of three seeking control of MAI, however the management of MAI concluded that Edelman is trying to seek control of the company with representation of 7.3% shares and demanding 40 % control of the board. At the same time, Edelman started lobbying for more investors interested in buying some or all of the shares of MAI. In response, the Management of MAI sued Edelman and others seeking interest in the Company. Shortly after this incident, Edelman increased its stake in the Company by acquiring additional 5.3 % shares through its subsidiaries, to a total holding of 12.7% shares. During the period of proxy battle, Edelman was entitled to a settlement in the $1 million range following a slander suit filed against MAI concerning company advertisements. Meanwhile, structural changes were taking place within the company. In April 1984, MAI International Corporation, the company's worldwide marketing arm, was merged into Basic/Four. Basic/Four also absorbed another MAI division, MAI Applications Software Corporation. Edelman was though able to gain control of MAI's board in August 1984, when Kurshan left his positions as chair, chief executive officer, and president of the company. Once at the company's controls, he immediately made plans to sell out MAI. During early 1985, most of the company's parts were sold off with Sorbus division was sold to a subsidiary of Bell Atlantic Corporation, while Basic/Four was purchased by investor Bennett S. LeBow in a leveraged deal worth about $100 million. Basic / Four inherited its former parent company, and was renamed MAI Basic Four, Inc. Prior to its purchase by LeBow, Basic/Four had been unprofitable. Weighted down by outdated technology and a marketing set-up that had never performed up to par, the company appeared to be failing. Under LeBow, the company's first move was to sell its Canadian subsidiary, MAI Canada Ltd., to Bell Atlantic for $22 million. As a result, MAI enjoyed a renewal that lasted for the next few years. LeBow retained the company's Chairmanship, the job of rebuilding MAI into a profitable company fell largely to William B. Patton, former president and CEO of Cado Systems Corporation. During stringent cost cuts half the company's vice-presidents were let go. Further efforts included outsourcing of components from Asia, specifically Japan, Korea, Taiwan, and Singapore, rather than having them built at home. The resurrection of MAI under Patton's guidance was rapid. For the fiscal year ending in September 1986, the company earned nearly $17 million on sales of $281 million. The company also went public again during that year. By 1987, nearly two-thirds of MAI's total sales were coming from overseas, and half of the parts used in its manufacturing operations were from outside the company. With much of the debt from its leveraged buyout erased, MAI began buying up existing firms. During early 1988, the company had acquired 25 small software, distribution, and maintenance companies. It also bought back MAI Canada, the Canadian distribution subsidiary it had sold off to Bell Atlantic a few years earlier for much needed cash. Part of its former U.S. service subsidiary, Sorbus, which had been sold off by Edelman during liquidation, was also repurchased. Business peaked in 1988, when MAI earned net income of $24.5 million on $420 million in revenue. In August 1989, MAI in an announcement explained plans for restructuring of the company in order to cut costs and regain its focus. A combination of $55 million in cash came from Brooke Partners L.P., an investment group controlled by LeBow, giving Brooke a majority ownership in MAI. Sales continued to move away, however, and for 1989, the company suffered a net loss of $39 million on revenue of $397 million. In early 1990, Fred D. Anderson, with the company since 1978, became president and chief operating officer. William Weksel, who had been filling in as president and CEO, replaced LeBow as chairperson and remained CEO. LeBow's was appointed as the Chairman of the board's executive committee. References "MAI Systems Corporation." May 1 2007. . "Edelman buys 7% stake in management assistance." Dow Jones News Service - Ticker (11/03/1983): N. pag. "Management Assistance pushes back AGM meeting to March." Dow Jones News Service - Edited Wall Street Journal (12/22/1983): N. pag. "Management Assistance Holder to continue to seek control." Dow Jones News Service - Wall Street Journal (12/27/1983): N. pag. Read More